Wednesday, August 13, 2014

Hiding assets during divorce? Prepare for a tax audit

Hiding assets during divorce? Prepare for a tax audit

Going through the divorce process can be a stressful experience. After all, couples are put in a position to split up nearly every aspect of the years they spent together. For some couples, addressing the financial aspects of divorce can become particularly contentious, since both parties want to maintain a sense of financial security after divorce.

From time to time, one spouse might be inclined to conceal marital assets during divorce in order to avoid splitting them. In addition to the possibility of a contested divorce settlement, this can also open the door to a tax audit conducted by the Internal Revenue Service.

Every year, people indicate their marital status on income tax filings to federal (and Georgia) officials. Because some people choose to hide assets during divorce, this could be viewed as a signal to initiate an audit. Even if both spouses have been transparent about their assets, and don't have to worry about tax violations, an audit is still an intimidating experience.

One other thing to keep in mind: Hidden assets might automatically be reported to the IRS. According to a report from Forbes, judges are legally bound to notify officials about potential inconsistencies in asset reporting found during divorce.

This may be of particular concern in divorces that involve a significant amount of assets. Transferring a large amount of funds, which is likely to happen in a high-asset divorce case, might be of particular interest for investigators looking to find issues in tax filings.

Ultimately, it may be best to work through divorce in an amicable fashion. By aiming toward a fair settlement, both spouses expect a stable post-divorce financial situation. Not only that, but this could prevent a whole host of unwelcome legal issues from springing up.
Source: Forbes, "Divorce Causes Tax Audits," Cameron Keng, Feb. 10, 2014

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